The slowly rebounding housing market may come too late for some homeowners who are facing foreclosure. Over the last few years, as many homeowners struggled to keep up with their mortgage payments, some companies have profited from the desperation of many borrowers.
These mortgage aid companies lured in customers with claims that they could keep distressed borrowers in their homes by renegotiating with the lenders. However, once these companies were paid the homeowner got no relief. In contrast, a Chapter 13 bankruptcy could have offered a means for these struggling homeowners to stay in their homes.
Federal agency takes note
The Federal Trade Commission increased scrutiny of mortgage aid companies through an initiative called the "distressed homeowner initiative," which seeks to stop predatory organizations from targeting distressed homeowners. Through the initiative, the agency has brought more than 40 cases since 2008. At the end of the year, the FTC brought more lawsuits against three companies alleging that they scammed homeowners out of money and failed to save the troubled borrowers from foreclosure.
In 2010, the agency took an additional step and passed the Mortgage Assistance Relief Services Rule banning the up-front collection of fees by mortgage foreclosure rescue and loan modification companies. It is unlawful for these companies to require payment until an acceptable written loan modification offer is received.
The prospect of foreclosure is daunting. Moving under normal circumstances is stressful, but add in the uncertainty of the foreclosure process and it is no surprise that companies are able to prey on distressed borrowers by providing false hope. What many consumers do not realize is that a bankruptcy filing may help them stay in their homes and reduce their debt burdens
The automatic stay put in place after the bankruptcy filing will halt foreclosure proceedings. A discussion with an experienced personal bankruptcy attorney is one way to determine whether a Chapter 7 or Chapter 13 bankruptcy is appropriate given individual circumstances. When a home is underwater on the first mortgage, second or third mortgages may also be stripped off through a bankruptcy.
There are several considerations when deciding whether bankruptcy is the right remedy, for instance:
- Have you tried to work with your lender to modify your current mortgage?
- How far behind are you on payments? What equity, if any do you have in the home?
- If other debts were removed, could you afford the mortgage payments?
- Could you afford a home loan workout plan, which included all your debt?
The answers to these questions may be a start on the path to financial security. Depending on your circumstances, it could also provide the means to keep you in your home, which is better than unfulfilled promises.
When facing a foreclosure, a free initial discussion with a bankruptcy attorney is a step to get a clear picture of relief that is available. In some cases, a bankruptcy filing can help you stay in your home and stop creditor harassment.